India's people power is also its problem

BENGALURU, India  One of India's biggest challenges is managing its biggest strength: its deep well of young and talented people. Salaries are on the rise for a workforce on the move, making recruitment and training an ongoing issue for India's low-cost service companies.

But the people problem is far from the only issue. At home, battles over inadequate infrastructure dog progress. Overseas, India faces pushback from countries such as the U.S. worried about the loss of domestic jobs to Asia. And India may face a looming crisis in intellectual property.

India's R&D outsourcing firms risk being shut out of an intellectual property gold rush. At a time when patent portfolios are becoming key corporate assets, companies such as Tata Consultancy Services and Wipro develop technology they must turn over to their customers.

Indian engineers' names appear on patents they help develop for their overseas clients, but the overseas customers own those patents. India companies typically file invention disclosures on behalf of their customers, but rarely own any IP based on their work.

Wipro filed 72 such disclosures last year, up from 24 two years ago, said I. Vijayakumar, the company's chief innovation officer. However, Wipro has been able to garner a portfolio of about 100 patents of its own to date, he added.

Increasingly the customers are competitors in their own right. Many big electronics companies have moved into Bangalore to tap the local low-cost talent pool, rather than outsource any R&D work to a third party such as Infosys, TCS or Wipro.

Today about two thirds of Bangalore's silicon engineering talent now works in local offices for multinationals and a third in domestic service companies, said A. Vasudevan, who heads Wipro's chip design group. "I think that ratio will hold," he said.

Some of the early entrants to Bangalore, such as Texas Instruments who arrived way back in 1985, limit outsourcing to low-end tasks such as chip verification. Even relative newcomers such as Intel have a significant local presence.

Some anecdotal reports suggest young Indian engineers are taking advantage of the local boom to hop from job to job, pushing salaries up and creating recruitment nightmares. Local companies downplay the reports.

"We see a lot of hype about India pricing itself out of the market," said Azim Premji, chairman of the overarching Wipro Ltd. group and son of the conglomerate's founder.

Nevertheless, other Wipro execs say they have been struggling to keep up with rising local salaries which have been increasing as much as 15 percent a year, according to Pratik Kumar, an executive vice president for human resources at Wipro.

"The days of such annual increases are over," said Kumar. "Such increases are mindless. No industry grows salaries at this rate. We are close to moderating salaries starting this year," he added.

Indeed, H.R. Venkatesh, who manages Wipro's outsourcing business in Asia, said he already feels pressure when he tries to tap into markets such as Taiwan where many engineers make a fairly lean $2,000 a month. "That doesn't leave us any cost advantage," he said.

To keep a lid on wages, Wipro is decreasing the number of engineering graduates it hires in favor of students with a general four-year science degree. Science graduates in India typically command salaries at a level about half of the US$750 per month of engineering grads, he said.

"Most of the engineering students can perform as well as an engineer after one year of [on the job] training. They are the cream of the crop and highly motivated," said chairman Premji.

"You don't need engineering graduates for every job. Science graduates are significantly lower cost and we are graduating a million of them a year," added Premji. "We have been hiring them systematically for six to nine months now," he said.

As many as 3,000 of the new hires at Wipro this year—about 35 percent of its intake of college students-- could be science grads, said Kumar.

"They are smart people but could not afford an engineering degree or wanted to graduate in less than four years," he added. "At half the costs of an engineer, this creates an extremely powerful model. Our customers often don't care if we bring in an engineer or non-engineer, as long as they are trained and smart," he said.